Flipping Houses: The Formula for Success

Today, we’re diving into a topic that’s crucial for anyone interested in flipping houses: how to put together the right formula for a successful flip. If you’ve been following along with our previous blogs, you’ve learned about key concepts like MAO (Maximum Allowable Offer), ARV (After Repair Value), and quiet costs. If you haven’t yet, I highly recommend going back and checking out our investor lingo series.

So, how do we analyze a deal to determine if it’s a good investment? The first thing to remember is that any property can be flipped, but only if you get it at the right price. Otherwise, you risk wasting time and money with little to no profit.

Let’s walk through the process together. Suppose you find a property on Main Street. The first step is to determine the ARV—the value of the home once it’s fully renovated. If I wasn’t a realtor, I’d reach out to an investor-friendly realtor for this information. Since I am one, you can simply text or call me, and I’ll help you figure out what that property could sell for once it’s fixed up.

Next, we need to calculate the rehab cost. This is how much it’ll take to transform the property from its current state to one that matches the ARV. If you have the time, the best practice is to walk through the property with a contractor to get an accurate estimate. Over time, with experience, you might get a pretty good idea of these costs just by looking at pictures, but it’s always wise to double-check with a contractor.

Once we have our ARV and rehab costs, we need to consider the quiet costs. These are the often-overlooked expenses like insurance, attorney fees, and utilities. You should also factor in any interest payments if you’re using a hard money loan.

Finally, we calculate the profit. How much do you want to make from this flip? It could be $20,000, $30,000, or more. Once you have that number, you subtract the rehab costs, quiet costs, and your desired profit from the ARV. What’s left is your MAO—Maximum Allowable Offer. This is the highest amount you should offer to ensure the deal is profitable.

For example, if your MAO is $80,000, you might offer $70,000 to leave some room for negotiation or unexpected repairs. If the seller counters at $90,000, you have a decision to make: adjust your profit expectations or walk away from the deal.

Remember, the path to successful flipping is in the math. You make your money when you buy, not when you sell. If you buy at the wrong price, it’ll show up later when you try to sell the property.

I hope this blog has inspired you to start analyzing deals with confidence. If you’re dreaming of flipping houses, start by running the numbers—even if you’re just pretending for now. With practice, your confidence will grow, and you’ll be ready to make that first offer.

Thank you for being part of the Bradley Real Estate Group community! If you have any questions about the formula or anything else related to real estate investing, don’t hesitate to reach out to me or my team. Visit us at thebradleyrealestategroup.com, and don’t forget to like, subscribe, and turn on notifications on our YouTube, Facebook, and Instagram.

We love you guys, and we’ll see you in the next episode!